Difference Capital unit to merge with Mogo Finance

2019-04-15 09:05 ET - News Release

See News Release (C-DCF) Difference Capital Financial Inc (2)

Mr. Henry Kneis reports

DIFFERENCE CAPITAL TO COMBINE WITH MOGO FINANCE TECHNOLOGY

Difference Capital Financial Inc. has entered into an arrangement agreement pursuant to which Difference will acquire all of the issued and outstanding common shares of Mogo Finance Technology Inc. which it does not already own.

The transaction will be carried out by way of a statutory plan of arrangement of Mogo under the Business Corporations Act (British Columbia), which will involve, among other things, a three-cornered amalgamation whereby Mogo will amalgamate with a wholly owned subsidiary of Difference to form a new British Columbia Difference subsidiary.

Difference and certain directors and officers currently own approximately 23 per cent of the issued and outstanding common shares of Mogo (on a basic basis). Under the terms of the arrangement agreement, holders of Mogo shares will be entitled to receive one common share of Difference for each Mogo share they hold. The consideration represents an aggregate equity value, on a fully diluted-in-the-money basis of approximately $110-million for Mogo and represents a premium of approximately 43 per cent to the closing traded price of the Mogo shares on the Toronto Stock Exchange and a premium of approximately 38 per cent to the 20-day volume-weighted average trading price of Mogo's common shares on the TSX, each as of April 12, 2019. Upon the completion of the transaction, existing holders of Difference shares and Mogo shareholders will each hold approximately 20 per cent and 80 per cent of the then-issued and outstanding Difference common shares, respectively.

Henry Kneis, chief executive officer and co-founder of Difference, will continue to operate the company through the transaction and will ensure an orderly transition to Mogo's management team thereafter. Once such transition is complete, Mr. Kneis will retire from the company. In anticipation of his departure, Mr. Kneis resigned from Difference's board of directors. The company wishes to thank Mr. Kneis for his dedicated service since 2012.

Transaction highlights:

The combination of Difference and Mogo creates a well-capitalized Canadian financial technology (fintech) leader with a strong organic growth trajectory.

"We are very pleased with the outstanding opportunity presented by the combination of Difference and Mogo," stated Michael Wekerle, executive chairman of Difference. "Since its formation in 2012, Difference has made numerous investments in emerging technology and growth companies and we are very excited about the next evolution and prospects of Difference with the combination with Mogo, the Canadian non-bank fintech leader," Mr. Wekerle continued.

Board approvals and recommendations

Difference's board of directors, after receiving the unanimous recommendation of a special committee of the board, solely comprising non-management directors, and in consultation with its financial and legal advisers, has unanimously determined that the transaction is in the best interests of Difference and is unanimously recommending that Difference shareholders vote in favour of the transaction.

Canaccord Genuity, independent fairness opinion provider to the special committee, has delivered a fairness opinion to the effect that, as of April 14, 2019, the consideration to be paid pursuant to the arrangement agreement by Difference shareholders is fair, from a financial point of view, to Difference, subject to certain assumptions, limitations and qualifications set out therein. The full text of the fairness opinion, which describes, among other things, the assumptions made, procedures followed, factors considered and limitations and qualifications on the review undertaken, and the term and conditions of the transaction, will be included in the management information circular of Difference.

Certain Difference shareholders, including Difference's directors and officers, which collectively control approximately 49.8 per cent of the outstanding Difference shares (on a basic basis), have entered into voting support agreements pursuant to which they have agreed, subject to the terms and conditions thereof, to vote in favour of the transaction.

Transaction details

Pursuant to the terms of the arrangement agreement, each Mogo shareholder will be entitled to receive one Difference share in exchange for each Mogo share held. The outstanding stock options, restricted stock units and warrants of Mogo will remain outstanding and will be exchanged for stock options, restricted stock units and warrants of Difference, as adjusted by the exchange ratio as appropriate in accordance with their respective terms. Mogo's outstanding convertible debentures will continue to remain outstanding and will be adjusted by the exchange ratio.

The arrangement agreement is subject to customary non-solicitation provisions, including each party's right to consider and accept unsolicited superior proposals that may be submitted by arm's-length third parties. The arrangement agreement also provides for break fee, reverse break fee and expense reimbursement payments in certain circumstances.

The transaction constitutes a related party transaction within the meaning of Multilateral Instrument 61-101 (Protection of Minority Security Holders in Special Transactions) given that a Difference control person and certain of Difference's directors and officers hold Mogo shares, which will be acquired by Difference pursuant to the transaction. The transaction is exempt from the MI 61-101 formal valuation requirement pursuant to Section 6.3(2) of MI 61-101. Minority approval (as such term is defined in MI 61-101) will be sought at a special meeting of Difference shareholders, which is expected to occur in June, 2019.

Closing of the transaction is subject to certain customary closing conditions, including court approval, certain third party consents and the approval of:

66 per cent of the votes cast by the Difference shareholders at the Difference meeting;

A majority of the votes cast by Difference shareholders, excluding Difference related parties that hold Mogo securities and any other votes that are required to be excluded in determining such approval in accordance with applicable securities laws and TSX rules, at the Difference meeting;

66 per cent of the votes cast by the Mogo shareholders at a special meeting expected to take place in June, 2019;

A majority of the votes cast by the Mogo shareholders, excluding Difference, its affiliates and any other votes that are required to be excluded in determining such approval in accordance with applicable securities laws;

TSX approval.

Further information regarding the transaction will be provided in a management proxy circular which Difference expects to mail to its shareholders in May. Copies of the arrangement agreement, the management proxy circular and the voting support agreements will be available on the SEDAR profile of Difference. Difference anticipates that the transaction will be completed in the summer of 2019.

Advisers

Eight Capital is acting as exclusive financial adviser to the board. DLA Piper (Canada) LLP is acting as legal adviser to the special committee and Canaccord Genuity is acting as independent fairness opinion provider to the special committee.

About Difference Capital Financial Inc.

Difference Capital invests in and advises growth companies. It leverages its capital market expertise to help unlock value in technology, media and health care companies as they approach important milestones in their business life cycle.